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U.S. Yields to Hit Record 1.25% This Year, Commerzbank Says

U.S. Yields Will Hit Record Lows by Year-End, Commerzbank Says

(Bloomberg) -- The rally in Treasuries has plenty of gas left in the tank, with 10-year yields on course to fall to record lows by year-end, according to Germany’s second-biggest bank.

This week’s Federal Reserve conference on policy tools and strategy made clear the U.S. central bank won’t be keen to preserve ammunition when presented with a looming economic downturn, according to Christoph Rieger, head of rates and credit research at Commerzbank AG. The Fed will therefore be aggressive in easing, he said.

“Once the Fed begins easing, however, the market will not stop there,” Rieger wrote in a note to clients Thursday. “It should account for a scenario of more aggressive pre-emptive steps, which looks set to take U.S. Treasury yields to record lows.”

U.S. Yields to Hit Record 1.25% This Year, Commerzbank Says

Rieger sees 10-year Treasury yields tumbling to 1.25% by year-end, a drop of almost a percentage point from the current level of 2.12% as of 10:19 a.m. in London. He predicted 10-year German bund yields will go to negative 0.4%, compared with about minus 0.24% now.

Commerzbank pulled forward its forecasts for Fed rate cuts following the June 4-5 Chicago conference on monetary-policy strategy, seeing reductions in September, December and March.

“The consensus among officials and academics was that the Fed should act more strongly and much earlier to impress markets,” Rieger wrote. “The fate of BOJ and ECB, constrained by the zero lower bound (ZLB) for many years, should now be avoided,” he added.

The Bank of Japan and European Central Bank’s policy rates today remain around zero. The Fed’s is in a range of 2.25% to 2.50%.

To contact the reporter on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Joanna Ossinger

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